Analysing Pakistan-GCC Free Trade Agreement amid Shifting Gulf Dynamics

In an era characterised by an evolving geopolitical landscape and dynamic economic alliances, the recent Free Trade Agreement (FTA) between Pakistan and the Gulf Cooperation Council (GCC) emerges as a focal point, casting a spotlight on the complex interplay between Pakistan and the GCC. The agreement stands as a testament to the strategic recalibration underway in the Gulf region, with Pakistan’s burgeoning relations with the GCC signalling a promising trajectory. Geographically, Pakistan stands as a pivotal link between South Asia, Central Asia, and the Middle East. As Saudi Arabia seeks to serve as a nexus between Asia, Africa, and Europe, Pakistan envisions itself as a “geo-economic bridge”, facilitating the economic endeavours of major corporations. Exemplifying this vision is Pakistan’s prospective collaboration with the Saudi petroleum conglomerate Aramco in a $10 billion refinery project situated in Gwadar. Beyond the traditional realm of economic transactions, this encapsulates a broader economic panorama shaped by the Pakistan-GCC FTA. Nevertheless, the realisation of such ventures hinges on Pakistan’s prudent fiscal governance, cultivation of private sector investment, and strategically seizing opportunities arising from the global energy transition.

Pakistan-GCC FTA heralds a transformative chapter in fostering economic cooperation and redefining regional dynamics. It is poised to substantially augment trade and investment by dismantling barriers and facilitating expanded access to services, with anticipated growth rates reaching up to 50 percent. Acknowledging its strategic significance, the Pakistan Business Forum underscores the FTA as a crucial juncture for economic advancement, particularly due to Pakistan’s robust export potential to the GCC, quantified at an estimable $4 billion. The UAE assumes a central role here, constituting over 40 percent of the Pakistan-Arab trade

Furthermore, the FTA is positioned as the most comprehensive trade agreement in the history of Pakistan as it transcends the confines of good trade, extending its reach to encompass services, digital trade, intellectual property rights, tourism, and investment. Such a holistic approach will serve as a catalyst for economic growth by generating employment and improving the standard of living.

Amid the prospects of the agreement, trade and investment between Pakistan and the GCC encounter multifaceted challenges. Given the GCC’s role as a net food importer and Pakistan’s standing as a food exporter, there exists a symbiotic potential. However, a notable impediment lies in the structure of Pakistani agriculture exports; many exporters lack direct involvement in cultivation, which limits their influence over the supply chains, both backward and forward. What further complicates the situation is the logistical and cost advantage enjoyed by India, which makes it a formidable competitor. This is evident in the higher cost of importing Basmati rice from Pakistan as opposed to India. Language barriers further exacerbate challenges in trade activities by hindering the acquisition of export licences for Pakistani exporters. Likewise, the government’s insufficient incentivisation of testing centres in Pakistan hampers the required quality tests for shipments to GCC markets.

Furthermore, a rise in trade volumes under the FTA could potentially increase the flow of drugs in the GCC region. The expanded legal trade activities may inadvertently provide cover for drug traffickers, who could exploit the legitimacy of cross-border commerce to conceal their operations. Additionally, amid Pakistan’s precarious economic situation, business owners have heightened pessimism regarding the conditions and prospects of their enterprises. Business insecurity, compounded by political instability, could hinder the expansion of Pakistan-GCC trade relations. For example, energy resource deficiencies affect electricity generation and impede Foreign Direct Investment (FDI) in Pakistan, especially from Saudi companies.

In response to the prevailing economic challenges, Pakistan is taking proactive measures to address uncertainties that may affect foreign investment from the Gulf countries. The establishment of the Special Investment Facilitation Council (SIFC), a collaborative platform involving civil-military entities, is a step in the right direction. The creation of this “hybrid” forum is rooted in the critical necessity for economic revitalisation in the face of bureaucratic hurdles and regularity complexities that act as deterrents to FDI. The SIFC could serve as a platform to streamline cooperation with GCC nations. The insistence of Saudi Arabia, Qatar, and the United Arab Emirates on military-backed assurances indicates a lack of trust in Pakistan’s political stability and its capacity to uphold business commitments through governmental transitions. While the military’s participation in the SIFC may provide a semblance of continuity, it accentuates the imperative for extensive, enduring policy reforms to tackle fundamental structural challenges.

Thus, as each Gulf nation embarks on its national rejuvenation plans, such as the Saudi Vision 2030 and Oman Vision 2024, Pakistan must conduct targeted research and align workforce training with the specific needs of these plans. Sideways, Islamabad should deploy a labour attaché in GCC embassies to identify skills needs for Gulf-bound workers. Last but not least, as Gulf countries seek to diversify their Public Investment Fund, Pakistan should take advantage of this opportunity. For instance, Pakistan can channel targeted investment into CPEC’s Special Economic Zones (SEZs).

Overall, Pakistan should adopt a forward-looking diplomatic strategy in response to evolving Gulf dynamics, prioritising sustainable economic linkages over a purely political stance. As global dynamics change, Pakistan’s economic prosperity becomes crucial for its global influence. In this regard, the Pakistan-GCC FTA goes beyond a mere economic arrangement, carrying substantial implications for regional cooperation, economic development, and diplomatic relations.